VAT reduction 'not enough' for charities

The £70m a year charities will save from the Government's reduction in VAT in yesterday's Pre-Budget Report does not go far enough, sector umbrella groups have said.

Stephen Bubb, head of chief executives body Acevo, estimated that the sector was losing out on over a billion pounds a year because of inefficiencies in the Gift Aid and VAT systems.

"VAT will remain a tax that hits charities disproportionately hard, forcing many charities to pay 15 per cent more for what they buy compared to businesses," he said. "Government should compensate charities for all irrecoverable VAT."

Bubb also said the Government's new 45 per cent tax rate for high earners from 2011 would not have the full effect of helping the economy if the Government did not also make changes so all of the Gift Aid on higher-rate taxpayers' donations went to charity instead of half being returned to the donor.

"This and the labyrinthine bureaucracy surrounding the Gift Aid system mean an estimated £700m is lost to charities every year," he said.

Helen Donoghue, director of the Charity Tax Group, said she hoped the Government could be persuaded to make the VAT reduction permanent.

"Given that charities will still be facing an irrecoverable VAT bill in excess of £400m a year, we would like to see the introduction of a permanent compensation package for charities in 2010," she said.

Keith Hickey, chief executive of the Charity Finance Directors' Group, said he was pleased by the reduction in VAT, a tax which he has previously said the sector is "uniquely disadvantaged by".

But he added that he was disappointed there had not been more action on anti-avoidance legislation – particularly over gifts from substantial donors.

"CFDG is concerned that the Government is continuing to take such a long time to reform the anti-avoidance rules around substantial donors to charity," he said. "The pre-Budget report notes that the Government will not now release its response to the substantial donors consultation until next year."

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Already registered?
Sign in
RSS Feed

Third Sector Insight

Sponsored webcasts, surveys and expert reports from Third Sector partners

Third Sector Logo

Get our bulletins. Read more articles. Join a growing community of Third Sector professionals

Register now